Is the stock market due for a correction?
The answer to this question is yes, but when this will happen is anyone’s guess. I have clients who ask this question on a daily basis. If I knew the answer, I can assure you I would not be writing this. The fact is that no one knows when market corrections will occur. I think the better question would be is my portfolio built to withstand a market correction? Most investors invest for the long term but think short term. Market corrections usually occur every one and a half years and they typically last about three and a half months. The problem is not how long these corrections last, but the fear that plays into most investors psyche. The two biggest movers of the market are fear and greed. The media has become the investors’ nemesis because you cannot escape the hype. They tend to prey on both these emotions and it can be easy to make poor investment decisions when markets become more volatile. We have not had a correction of more than 10 percent since 2011, so for history sake, we are overdue for a correction. I will tell you that the market went without a 10 percent correction from 1990 through 1997. This does not happen very often, but it is possible that the market continues its bull run without a significant pullback in the near future. Many economists are calling for an interest rate hike, but we have been hearing this for over a year now. The fact that the dollar has been strong could curtail any rate hike in the near term. The bottom line is you need to have an investment portfolio built to withstand corrections so you do not make poor decisions during times of extreme volatility. Most investors tend to make poor decisions during market corrections. At the end of the day, if your portfolio is built properly it can withstand a 10 or even 20 percent correction. Raising some cash and waiting for opportunities to arise can be a great option so you have money to deploy when the correction comes. Rebalancing your portfolio and taking some gains can allow you to take advantage of a buying opportunity. As always, the opinions expressed in this article are that of the author’s and should not be considered advice for your unique financial situation. If you have any questions on this article, feel free to contact us at (772) 223-9686.